With Merchandise, More Can Be Less

Last month, we began a series on the seven keys to success in e-commerce for all companies, regardless of whether they have another distribution channel. To paraphrase a popular saying, the No. 1 key to success is ... the merchandise, stupid!

It is surprising how many pure-play dot-coms missed this point. Even today, the advice stresses customer service as the key to success. If you include in customer service having the right merchandise to attract buyers, then the advice is right. However, it is doubtful those offering this advice included merchandise in their definition of customer service.

This is not surprising. The majority of founders, investors and analysts at dot-com companies never worked in or studied selling to consumers and the purchase process. Most have a background in marketing or technology. They thought a site offering everything in a product category would be the winning model, disregarding the importance of offering the right merchandise. This led many dot-coms to think that in a world where everything was available, the driving factor would be price.

Thus, the dominant business model in e-commerce became patterned after what all the hype said would be the winning formula: the Amazon model -- offering everything possible in a single product category and assuming that if you could bring enough people to the site, this would generate revenues and eventually profits. What is overlooked in this model is that most people do not know when they enter a store exactly what they want. This is where having the right merchandise becomes the No. 1 factor. That's nothing new to anyone engaged for the past 100-plus years in remote shopping -- cataloging.

Category Overload

Few, if any, categories of merchandise lend themselves to success by offering to consumers all items available in the category, least of all one that has thousands of items, such as books. There are probably more than 100,000 books in print, and even if you could build a bookstore to house them all, that bookstore would be so large no one would be able to find any particular book.

In the virtual world, where the customer does not face miles of aisles, this seemed doable. All you had to have was a gimmick to draw traffic, which gave birth to the second mistake in the Amazon model: huge discounts. The problem with that is when you have to raise prices to generate margin to cover your expenses, you wake up to find that some competitor is willing to buy customers by offering lower prices. So you find yourself on the gerbil's wheel, running like mad but going nowhere.

What all those new to remote shopping ignored in following this model were the buyers and how they buy. It is likely that the proponents of this model did marketing research among consumers who said they would be attracted by the biggest possible selection at the lowest price. But there is a big difference between what is wanted and what consumers do.

To see this for yourself, go to any bookstore on a Saturday. Watch the consumers. Even if they walk in with a specific book in mind, they rarely go straight to that shelf. First, they look at the displays of best sellers, sale items and, on the way to the section their book is in, they stop to look at a few other books, even in categories unrelated to their original choice. The Amazon model has tried to solve that by offering suggestions of what other like-minded buyers have bought. But the suggestions are all from the same category. The walk through a store encourages that cross-fertilization. The same detriments to the Amazon model apply to trying to put out a catalog of books. The only successful ones offer books from a specific category or two; they do not offer books from many different categories.

Also, many people have no particular book in mind when they enter the store. They go in to browse, studying what is available. Without a good merchandise selection, they almost always leave empty-handed. So for a store to be successful, it is critical to have the right mix of goods and to present it in a way that catches customers' attention. Books are probably one of the easier categories to merchandise, as the only variable is the content of the books.

If you look at apparel or home furnishings, or any of a hundred other categories, the variations for a given product -- color, material and size, for example -- create a wide spectrum of variables that the customer needs to input into his decision process. At this juncture, the merchandise selection becomes paramount, overriding price and breadth of selection.

Just Browsing

Another problem with offering everything in a category is that browsing on a Web site is not friendly. Most people still use narrow bandwidth access to get on the Web. A recent report by Goldman Sachs, New York, stated that by 2003, only 12.5 percent of U.S. households that have access to broadband would access it at home. Therefore, the option of having all items in a product category available loses its value, as the consumer will not be able to browse through everything but will remain frustrated.

In a retail store or catalog, the browsing experience is vastly better. At a glance, the consumer will see either a wide assortment of products or, in the catalog, a lifestyle setting of the product. Both are valuable to consumers in making a decision. These approaches appeal to their sensitivities rather than presenting a laundry list. Narrow bandwidth prohibits Web sites from offering these experiences to the consumer. Thus, technological limitations make the merchandise selection even more critical to a Web site. At this point, even price is not as critical as long as the price is reasonable compared with the market.

It is not surprising that catalogers report that their Web sites are now profitable whereas almost all pure plays are not. Knowing the fundamentals of remote shopping and merchandise is 60 percent of success. Catalogers wisely decided to try replicating their catalogs rather than trying to offer everything in a category. This meant offering a tailored selection as they do in their catalogs. The skills they learned in selecting merchandise for the catalogs were perfect for a successful Web site. Not even retail store merchants have this experience.

The second key to successful selling on the Web is innovation -- a trait that catalogers have neglected, even in their paper catalogs. That will be the subject of next month's article.

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